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Metal prices have rallied since the beginning of the year — but the price rise has not been uniform. The average prices of copper and zinc rose 3-5 per cent; increase in the price of nickel, iron ore, and steel are in double-digits.

Analysts said the fundamentals in the metal segment are currently supporting a bullish trend. However, sentiments do not support a big rally, as buyers and investors are waiting to see how the apparent trade war between the US and China pan out.

Gnanasekar Thiagarajan, director, Commtrendz Research, said global incidents such as an iron ore mine accident in Brazil last month had caused supply disruptions and had led to the recent rally.

“Such reasons are, however, not sustainable and could fizzle out,” he added.

The dispute over tariffs between the US and China is keeping big buyers away. Some fundamentals, however, support the rally.

For instance, inventory levels in the London Metal Exchange are an important indicator. Commodities such as copper and lead are at a near-decade low. This reflects that demand is high and has led to the rally.

Sandeep Daga, director, Regsus Consulting, said, “The US-China trade dispute has tested the patience on both sides. Even if no solution is found till March 1, when the new US tariffs for Chinese goods comes into effect, there might be a tentative deal.”

Steel prices are rising along with relevant commodities such as iron ore for the past two-three months because of reports of China’s crackdown on polluting mills and Brazil’s mine accident.

Since the start of the year, prices of hot-rolled steel are up 10.5 per cent, while iron ore is up 22 per cent. Indian steel companies have also raised prices. This trend will last till supply remains in check.

Aluminium is a concern area for global producers as well because prices that went up last year because of US sanctions on Russian manufacturer Rusal is falling again after sanctions were lifted.

Now the price is about $1,850 per tonne, which is below the cost of production. This is the reason why China and other countries are dumping their material, especially aluminium scrap, in India.

Scrap duty in India is low. As a result, imported material is cheap. The government is not raising duties despite demand from industry because it might lead to a backlash in the World Trade Organization.

Domestic companies are selling products in the export market. In the future, only a global price rally could soothe sentiments.

Aluminium prices, however, could rise this year itself, according to KarvY Consultant’s 2019 annual report. “Expected increase in production levels of automobile players in China and Japan” could be cause, says the report.

Even refining charges, which is real income for Indian copper converters and smelters, are also falling, after they peaked in 2015 in line with global trends. The prices will improve only when copper prices rally.

In the near term, when prices rise, spot-refining changes will go up which companies will benefit depending upon their ratio of spot and contract prices. Since closure of Sterlite’s Tamil Nadu plant, India’s copper imports have increased.

Refining charges go up when copper ore production rises, requiring more smelting for conversation to primary copper.

China will be a major supporter of base metal rally once it is out of its slowdown blues. In the past 12 months China’s manufacturing index has been falling month after month. In a year, it fell from 51.6 to 48.3 in January 2019.

Daga said, “Investors have been sitting at the edge of their seats to get engaged with the markets. Pause in the US rate hike and Chinese stimulus have given them the ‘hope capital’ that they needed. They are merely waiting for the cloud of trade dispute to disperse before deploying their capital in cherry picking undervalued assets. In other words, any sign of a trade deal could bring a positive surprise to financial markets including commodities.”